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Global CFO Signals: Signs of a Sustainable Recovery?

Ask CFOs around the globe about the economic environment, and many of them will tell you that uncertainty is down, corporate prospects are up, and their risk appetite is hearty. Those are some of the takeaways from the 15 country reports in the latest edition of Global CFO Signals from Deloitte Touche Tohmatsu Limited.

Little wonder that finance executives are reporting sustained—and in some cases, increasing—optimism. In addition, many are moving forward with their expansionary strategies despite such global concerns as the Russia/Ukraine crisis and the threat of central bank easing.

First, let’s consider optimism. In Belgium, more than half of finance chiefs are more optimistic than three months ago, buoyed by good financial performance: in fact, close to 70% report performance on budget or better than budgeted. In New Zealand, which is in this report for the first time, 58% of CFOs report increased optimism, driven by the strength of their own economy. And in the U.K., optimism edged slightly lower, but remains close to its highest level in four years.

That optimism is fueling CFOs’ expectations in many countries. In Switzerland, some 80% of CFOs expect revenues to increase over the next 12 months. Some 75% of Ireland’s CFOs expect increased margins. And in the U.K., hiring expectations are at a three-and-a-half year high.

As always, the trend is not universal. North America’s CFOs remain solidly positive about their companies’ prospects. But they refuse to move the needle on their sales and earnings expectations. While sales growth expectations rose slightly from 4.1% to 4.6%*, earnings growth hit a new low of 7.9%*. Meanwhile in Europe, Norway’s CFOs’ net optimism climbed out of negative territory, but remains low at 2% compared with six months ago. And in Germany, some 46% of CFOs report being less optimistic and cite cost cutting as their top strategic priority.

Still, overall, CFOs seem to be signaling that they believe a recovery can be sustained, and they plan to take advantage. M&A activity is expected to be up significantly in such countries as France, Sweden, and the U.K. For the first time in a year- and-a-half, an equal number of Finland’s CFOs are prioritizing expansionary strategies as defensiveones. And in North America, more than half of capital expenditures are slated for growth and innovation (37% and 14%, respectively).

Aiding that momentum seems to be a collective sigh of relief. Skyrocketing levels of uncertainty have tapered in many countries. In Ireland, for example, 85% of CFOs perceive the level to be normal, low, or very low. “Many of the factors that previously drove uncertainty— such as the budget issues in the U.S. and the eurozone crisis—are all gone for now,” notes Ira Kalish, Chief Global Economist for Deloitte. “And many of the current drivers—such as the Russian situation—just do not have the same economic impact.”

How does that bode for CFO sentiment in Q1 2014? What follows is a synopsis by region:

Americas

In North America, CFOs are again optimistic (47% expressing rising optimism versus 20% expressing pessimism), but as mentioned, their near-term growth expectations remain weak. Contributing to their optimism are views of several major economic zones. Optimism regarding North America, for example, rose due to improving assessments of the economy’s current health and its trajectory. Perceptions of Europe turned a corner, with CFOs’ assessments of current economic health better, and their outlooks on its trajectory finally netting out positive. Assessments of China were mixed with better perceptions of current health but worse on trajectory. The story is much different, however, in the one country reporting in South America—Argentina. There, CFO outlooks can best be described as outliers this quarter (-38% net optimism), fueled by skepticism over government policies.

Asia-Pacific

Some 43% of Australia’s CFOs report increased optimism this quarter, a sentiment bolstered by the fall of the Australian dollar for much of the survey period, the record run of low interest rate improvements in the U.S. and European economies, and a belief that the degree of economic uncertainty has declined. That confidence is translating into a rise in revenue expectations (net 79% vs.net 55% last quarter), head count, and capital expenditures, as well as the highest level of risk appetite in four years.

Elsewhere, in New Zealand, CFO optimism is also running high, driven by the domestic economy, equity market performance, and high commodity prices. Still, only half of CFOs believe that the time is right to take greater risk onto their balance sheets, and 68% cited organic expansion as their preferred form of growth.

Europe

Positive CFO sentiment rules in much of Europe. In the U.K., business confidence is apparent in the appetite for corporate risk: a record 71% of CFOs say now is a good time to take risk onto their balance sheets. In Ireland, 77% of CFOs now describe their business strategy as expansionary, up from 56% 12 months ago. And in Switzerland, CFOs are bullish on their own country’s prospects as well as their own companies’: in fact, 76% report a high level of confidence in the economic outlook. And there are even glimmers of hope where CFOs are less enthusiastic. In Norway, for example, where most CFOs are planning defensive uses for their cash, such as dividends, 37% still do cite other uses, including “other investments” and “acquisitions.” And although Germany’s CFOs are maintaining a defensive posture, those looking to invest are eyeing China, over the U.S. and their own country.

What Is in Store?

Will the positive sentiment expressed by many of the CFOs be sustained? That obviously will vary from country to country, says Kalish. But, globally there is a sense that “the worst is over and now may be a good time to think about investing.”

By the Numbers

*All numbers with asterisks are averages that have been adjusted to eliminate the effects of stark outliers.

About Deloitte Member Firm CFO Surveys

Twenty-three Deloitte Member Firms’ CFO surveys, covering 58 countries, are conducted on a quarterly, biannual, or annual basis. The surveys conducted are “pulse surveys” intended to provide CFOs with quarterly information regarding their CFO peers’ thinking across a variety of topics. They are not, nor are they intended to be, scientific in any way, including the number of respondents, selection of respondents, or response rate, especially within individual industries. Accordingly, this report summarizes findings for the surveyed populations but does not necessarily indicate economic or industry-wide perceptions or trends. Further, the focus, timing, and respondent group for each survey may vary. Please refer to “About Deloitte Member Firms’ CFO Surveys” (page 30 in the pdf) for member firm contacts and information on the scope and survey demographics for each survey.

About Deloitte Insights

Deloitte’s Insights for CFOs provides financial executives a customized resource to help them address the strategic, operational and regulatory issues they face in managing their finance organizations and careers, with top-line digests, research, perspectives and technical analyses.

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